The Donald Trump Economy - Good or Bad?
The short answer is yes, it was. Partly because of the tax law he signed but mainly because it was doing well, in a sustainable way, before he took office. The same is true for the fantastic unemployment numbers - most of the heavy lifting there was done during Obama's term.
But are the good times about ready to end?
Stock Market Rise and Fall
Since Donald Trump won the election, based mostly on his promise to cut corporate tax rates, the Dow Jones Index rose well above the trend set by President Obama.
The Dow Jones Index
It continued to rise as the Republicans pushed to pass the corporate tax cut bill. It rose still further after they did and the corporate beneficiaries cashed in with huge stock buy-backs. The contribution from the middle class is negligible.
At the moment, largely due to Trump's tariff war, the market has retreated to the track that President Obama put the country on. That means the current Dow is in the same channel that was establish under Obama.
It is also interesting to note that the technical formation established over the last several months is very similar to that created just prior to the Great 2008 Recession. If the current market can't breach that lower light line, get ready for a crash as the chances are greatly increased.
Low unemployment has probably been the best thing Donald Trump can point to as a success during his first two years in office 1. But again, the course was set during the Obama presidency; Trump just improved upon it. In another hub, however, I point out there are some storm clouds gathering to slightly dim the light on those great results.
But, before that there will be the January 2019 unemployment report. Because of the Trump gov't shutdown 2, his run of great unemployment numbers IS going to come to a screeching halt. Some think there might even be a net loss of jobs. The question is, of course, once the shutdown ends, after the initial rehiring is over, will the unemployment numbers get back to where they were. My bet is on that they won't
1 It is important to note (in order to keep the record straight) is job growth under Donald Trump is not as good as what it was under President Obama.
2 I call it that because Trump had promised Sen. Mitch McConnell he would sign the short-term funding bill in December 2018 but then broke that promise, leading to where we are 30 days later.
Long-term economic growth has never been as good as Trump has exaggerated about. Granted, it is better than that established by President Obama after the recovery was in progress.
Obama vs Trump GDP Results
Another reason for recent improvement in GDP is the large increase in defense spending with little decrease else where. Since government spending is part of the GDP calculation, that will naturally increase GDP, everything else being equal.
What has had such a negative impact, however, on the Dow averages is predicted to have the same impact on GDP. In the short-run, the White House says the Trump shutdown is knocking 0.8% off of GDP growth per week of shutdown. To date, that means the GDP will have lost 3.2 points which, economists are saying, is close to putting the GDP in negative growth territory!!!
Long-term, however, a more devastating impact on growth is the Trump tariff wars. Beyond the effect of the shutdown, the war is reducing corporate profits across the board on on any company that deals in international trade.
Put the two together and negative growth for the 1st quarter 2019 is almost a certainty - and we are less than a month into it. In all likelihood, the trade war will keep economic growth low in the foreseeable future.
Debt and Deficit
It is arguable that the corporate tax cut will have any lasting impact on the stock market or GDP growth, but it is not arguable that it is going to balloon our deficit and are public debt. Already the public debt has increased $2 trillion dollars.
Lower GDP growth and the shutdown will probably lead to higher unemployment and a reduction on the upward pressure for wage growth.
Prior to the Great 2008 Recession, wages were growing at about 3% per year. After the recession, where wage growth bottomed-out at 1.9%, and until early 2015, wage growth average about 2.25%. It then rose in the last years of the Obama presidency to around 2.75% annual growth, when it flattened out again. The very low unemployment in the Trump years finally started pushing wages up again in early January 2018. The last measurement was at 3.2%, a nice sustainable rate.
For the reasons just cited, that is unlikely to remain that high in the future.
There are few certainties in life. Two commonly mentioned are death and taxes. There is a third economic certainty. If population plus productivity doesn't not grow, economic growth will fall. It is clear that Donald Trump's war on immigration, legal and illegal, will significantly lower the number of immigrants coming into America.
That works fine when the non-immigrant population produces enough babies to to replace those that leave the country or die PLUS a little bit more. Here is the thing, the native population growth fell below the replacement rate well over a decade ago.
The only way for the American economy to keep growing (given our productivity rate is, and has been flat) is to ensure enough immigrants enter the country make up for the shortage. Trump's policies will prevent that.
Only time will tell.
Do You Think The Economy Has Done As Well As Trump Claims?
Do You Think the Economy Is Going to Continue to Do As Well As You Think It is Doing Now
© 2019 Scott Belford